Dime Community Bancshares, Inc. Reports Earnings

Published 4:30 PM ET Thu, 26 Oct 2017
Globe Newswire

BROOKLYN, N.Y., Oct. 26, 2017 (GLOBE NEWSWIRE) -- Dime Community Bancshares, Inc. (NASDAQ:DCOM) (the “Company” or “Dime”), the parent company of Dime Community Bank (the “bank”), today reported net income of $13.3 million for the quarter ended September 30, 2017, or $0.35 per diluted common share, compared with net income of $12.0 million for the quarter ended June 30, 2017, or $0.32 per diluted common share, and net income of $10.5 million for the quarter ended September 30, 2016, or $0.29 per diluted common share.

Highlights for the third quarter of 2017 included:

Robust Business Banking division loan originations of $86.0 million in the third quarter, at an average rate of 4.61%, a 33% increase versus the second quarter of 2017;

Received approval to serve as a Small Business Administration (“SBA”) lender, positioning the Business Banking division for future expansion;

Deposit costs remain well-controlled, with total cost of deposits remaining flat on a year-over-year basis and up only 1 basis point compared to the second quarter of 2017;

Pristine credit quality, with total non-performing loans dropping to 0.01% of total loans; and

Kenneth J. Mahon, President and CEO of the Company, stated, “We continued the expansion of our Business Banking division and remained focused on growing the relationship-based lending model. Given the strong growth that we saw in this business during the third quarter, we remain on track to achieve the goals we set at the beginning of the year. Becoming an approved SBA lender was also an important step as it allows us to better serve small business customers and help drive economic opportunity in our communities. It is also important to note that we maintained our focus of expense discipline while investing in, and growing, the Business Banking division.”

Management’s Discussion of Quarterly Operating Results

Net Interest Income

Net interest income in the third quarter of 2017 was $38.5 million, an increase of $405,000 (+1.1%) from the second quarter of 2017 and an increase of $3.1 million (+8.8%) over the third quarter of 2016. Net interest margin (“NIM”) was 2.53% during the third quarter of 2017, compared to 2.57% in the second quarter of 2017, and 2.59% during the third quarter of 2016. The NIM for the third quarter of 2017 was negatively impacted by 1 basis point as a result of approximately 17 days of interest expense related to the Company’s Trust Preferred securities that were redeemed on July 17, 2017.

During the third quarter of 2017, income from prepayment activity totaled $1.4 million, benefiting NIM by 9 basis points, compared to $1.0 million, or 7 basis points, during the second quarter of 2017, and $1.7 million, or 12 basis points, during the third quarter of 2016. Average interest-earning assets were $6.08 billion for the third quarter of 2017, an 11.2% (annualized) increase from $5.92 billion for the second quarter of 2017, and an 11.6% increase from $5.45 billion for the third quarter of 2016.

For the third quarter of 2017, the average yield on interest-earning assets (excluding prepayment income) was 3.44%, 3 basis points lower than the 3.47% yield for both the second quarter of 2017 and for the third quarter of 2016. The average cost of funds was 1.14% for the third quarter of 2017, flat compared with the second quarter of 2017, and down 1 basis point compared with the third quarter of 2016.

Loans

Real estate loan portfolio growth was $59.6 million (4.1% annualized) during the third quarter of 2017. Real estate loan originations were $210.6 million during the quarter, at a weighted average interest rate of 3.99%. Real estate loan amortization and satisfactions totaled $148.0 million, or 10.2% (annualized) of the portfolio balance, at an average rate of 4.02%. The annualized loan payoff rate of 10.2% for the third quarter of 2017 was lower than both the second quarter of 2017 (10.5%) and the third quarter of 2016 (12.7%). Average real estate loans were $5.84 billion in the third quarter of 2017, an increase of $83.4 million (5.8% annualized) from the second quarter of 2017 and an increase of $514.2 million (9.6%) from the third quarter of 2016.

Included in total real estate loan originations during the third quarter of 2017 were $41.5 million of originations from the Business Banking division at a weighted average rate of 4.62%, compared to $28.8 million of originations at a weighted average rate of 4.67% during the second quarter of 2017.

Commercial and industrial (“C&I”) loan originations were $44.6 million during the quarter, at a weighted average rate of 4.60% compared to $35.9 million at a weighted average rate of 4.77% during the second quarter of 2017. Total C&I loan balances were $111.1 million at the end of the third quarter of 2017, compared to $68.2 million at the end of the second quarter of 2017.

Approximately 40% of the Business Banking division’s year-to-date originations have been floating rate loans.

Cash and Securities

Third quarter 2017 cash and securities balances increased by $81.6 million versus the second quarter of 2017. “In the coming quarters, investors can expect to see trending growth in the bank’s on-balance sheet liquidity, in keeping with our strategic asset diversification objectives,” stated Mr. Mahon. “The appropriate level of investment liquidity for our bank will be based in part on the direction of monetary policy and interest rates, as signaled by the Federal Reserve Open Market Committee, and on our analysis of the bank’s funding needs and the level of core deposit funding.”

Deposits

The Company continues to focus on growing relationship-based deposits sourced from its retail branches and Business Banking division. On a year-over-year basis, total average checking account balances increased by 17.9% to $417.6 million for the third quarter of 2017.

The average cost of total deposits for the third quarter of 2017 increased 1 basis point on a linked quarter basis to 0.86%, and remained unchanged compared to the third quarter of 2016. While many of the bank’s online competitors increased their posted rates in the second quarter and third quarter of 2017, the posted rate on DimeDirect, the bank’s online channel, remained unchanged, which led to money market account outflows from this channel. Overall, total deposits declined by $47.3 million during the third quarter of 2017 from the linked quarter.

“Our funding focus is on core business deposits, therefore we chose a less aggressive online deposit pricing posture last quarter, which caused the loan-to-deposit ratio to rise,” stated Mr. Mahon. “Our strategic goal is to have all of our new extensions of credit include some level of self-funding, and to increase our business loan and deposit services to the small and medium sized enterprises in the branch market areas. The online channel is one element of our strategy and will remain competitively priced.”

The loan-to-deposit ratio was 136.8% at September 30, 2017, compared to 133.0% at June 30, 2017 and 132.0% at September 30, 2016.

Borrowed Funds

Total borrowings increased $202.3 million during the third quarter of 2017 as compared to the second quarter of 2017 as the Company utilized Federal Home Loan Bank advances to offset some of the declines in online money market deposits. The Company also took advantage of lower borrowing rates during the third quarter of 2017 and entered into $97.0 million of long-term borrowings (with initial terms of 2 years and more), at an average rate of 1.74%, versus $60.9 million of long-term borrowings, at an average rate of 1.76%, in the second quarter of 2017.

Non-Interest Income

Non-interest income was $4.3 million during the third quarter of 2017, which was $2.5 million higher compared to the second quarter of 2017, and up $2.2 million compared to the third quarter of 2016. The increase in non-interest income during the third quarter of 2017 was due to a gain of $2.6 million from the sale of the Company’s pooled bank trust preferred securities portfolio.

Non-Interest Expense

Total non-interest expense during the third quarter of 2017 was $22.2 million. During the third quarter of 2017, the Company recognized one-time expenses of $1.3 million for losses from the extinguishment of debt related to the redemption of its Trust Preferred securities. In addition, the Company also recognized $1.7 million of one-time expenses related to de-conversion costs associated with the planned change in the bank’s core processor, which is expected to occur in 2018. Excluding these one-time expense items, adjusted non-interest expense was $19.2 million during the third quarter of 2017, lower than the second quarter of 2017 by $291,000, primarily related to lower salary expense and related employee benefits.

The ratio of non-interest expense to average assets was 1.41% during the third quarter of 2017. Excluding the aforementioned one-time expenses, the ratio was 1.22% during the third quarter of 2017, lower than both 1.27% during the second quarter of 2017, and 1.29% during the third quarter of 2016.

The efficiency ratio was 55.3% during the third quarter of 2017. Excluding the aforementioned one-time expenses, the ratio was 47.8% during the third quarter of 2017, lower than both the 49.0% during the second quarter of 2017, and the 48.8% during the third quarter of 2016.

Income Tax Expense

The reported effective tax rate for the third quarter of 2017 was 35.2%. During the quarter, the Company recognized an income tax benefit of $1.5 million for a discrete tax item related to distributions of retirement benefits from the Company’s Benefit Maintenance Plan. The tax benefit was partially offset by a one-time deferred tax expense of $476,000 to adjust the Company’s deferred tax asset. Excluding these one-time tax adjustments and the one-time non-interest income and expense items mentioned above, the effective income tax rate would have been 40.1% for the third quarter, compared to 37.8% for the second quarter of 2017. The increase in the adjusted effective tax rate negatively impacted the third quarter of 2017 adjusted earnings per diluted share, of $0.33, by $0.01.

Credit Quality

Non-performing loans were $806,000, or 0.01% of total loans, at September 30, 2017, a decrease from $3.4 million, or 0.06% of total loans, at June 30, 2017. The decrease in non-performing loans during the third quarter of 2017 was primarily the result of $2.4 million non-performing loans sold at par value. The allowance for loan losses was 0.37% of total loans at September 30, 2017, consistent with June 30, 2017. At September 30, 2017, non-performing assets represented 0.7% of the sum of the bank’s tangible common equity plus the allowance for loan losses and reserve for contingent liabilities (this non-Generally Accepted Accounting Principle (“GAAP”) statistic is otherwise known as the "Texas Ratio") (see “Problem Assets as a Percentage of Tangible Capital and Reserves” table and “Non-GAAP Reconciliation” table at the end of this news release), which is lower than the ratio of 1.0% at June 30, 2017. A loan loss provision of $23,000 was recorded during the third quarter of 2017, compared to a provision of $1.0 million during the second quarter of 2017, and $1.2 million during the third quarter of 2016.

Capital Management

The Company’s consolidated Tier 1 capital to average assets (“leverage ratio”), which was 8.58% at September 30, 2017, was in excess of all applicable regulatory requirements.

The bank’s regulatory capital ratios continued to be in excess of all applicable regulatory requirements inclusive of conservation buffer amounts. At September 30, 2017, the bank’s leverage ratio was 9.23%, while Tier 1 capital to risk-weighted assets and Total capital to risk-weighted assets ratios were 11.46% and 11.90%, respectively.

Diluted earnings per common share of $0.35 exceeded the quarterly $0.14 cash dividend per share by 150% during the third quarter of 2017, equating to a 40.0% dividend payout ratio.

Book value per share was $15.66 and tangible book value (common equity less goodwill divided by number of shares outstanding) per share was $14.17 at September 30, 2017.

Outlook for the Quarter Ending December 31, 2017

At September 30, 2017, the bank had outstanding real estate loan commitments totaling $46.7 million, at an average interest rate approximating 4.31%, all of which are expected to close during the quarter ending December 31, 2017.

During the third quarter of 2017, the Company increased its rack rates on multifamily loans, reflecting the fact that funding costs are moving higher. In 2017, the bank has also built its origination capacity to support new lending channels with higher yields and more deposit opportunities. Therefore, with a lower level of expected originations in the Company’s traditional multifamily market, the multifamily portfolio is expected to be lower on a linked quarter basis. The Business Banking division is expected to meet its 2017 portfolio growth targets, which includes C&I and direct-sourced commercial real estate loans.

Loan loss provision for the fourth quarter of 2017 is expected to be driven by loan portfolio growth, subject to management’s assessment of the adequacy of the allowance for loan losses.

Non‐interest expense is expected to be approximately $19.5 million during the fourth quarter of 2017.

The previously announced sale of the Williamsburg branch office property is now expected to close in the fourth quarter of 2017 and is expected to generate an after-tax gain of approximately $5-6 million.

The Company projects that the consolidated effective tax rate will approximate 39% in the December 2017 quarter.

ABOUT DIME COMMUNITY BANCSHARES, INC.The Company had $6.44 billion in consolidated assets as of September 30, 2017. The bank was founded in 1864, is headquartered in Brooklyn, New York, and currently has twenty-seven branches located throughout Brooklyn, Queens, the Bronx and Nassau County, New York. More information on the Company and the bank can be found on Dime's website at www.dime.com.

This news release contains a number of forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). These statements may be identified by use of words such as "anticipate," "believe," “continue,” "could," "estimate," "expect," "intend," “likely,” "may," "outlook," "plan," "potential," "predict," "project," "should," "will," "would" and similar terms and phrases, including references to assumptions.

Forward-looking statements are based upon various assumptions and analyses made by the Company in light of management's experience and its perception of historical trends, current conditions and expected future developments, as well as other factors it believes are appropriate under the circumstances. These statements are not guarantees of future performance and are subject to risks, uncertainties and other factors (many of which are beyond the Company's control) that could cause actual results to differ materially from future results expressed or implied by such forward-looking statements. Accordingly, you should not place undue reliance on such statements. Factors that could affect our results include, without limitation, the following: the timing and occurrence or non-occurrence of events may be subject to circumstances beyond the Company’s control; there may be increases in competitive pressure among financial institutions or from non-financial institutions; changes in the interest rate environment may reduce interest margins; changes in deposit flows, loan demand or real estate values may adversely affect the business of the Company and/or the Bank; unanticipated or significant increases in loan losses; changes in accounting principles, policies or guidelines may cause the Company’s financial condition to be perceived differently; changes in corporate and/or individual income tax laws may adversely affect the Company's financial condition or results of operations; general economic conditions, either nationally or locally in some or all areas in which the Company conducts business, or conditions in the securities markets or the banking industry may be less favorable than the Company currently anticipates; legislation or regulatory changes may adversely affect the Company’s business; technological changes may be more difficult or expensive than the Company anticipates; failure or breaches of information technology security systems; success or consummation of new business initiatives may be more difficult or expensive than the Company anticipates; or litigation or other matters before regulatory agencies, whether currently existing or commencing in the future, may delay the occurrence or non-occurrence of events longer than the Company anticipates.

DIME COMMUNITY BANCSHARES,INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(Dollars in thousands except share amounts)

September 30,

June 30,

December 31,

2017

2017

2016

ASSETS:

Cash and due from banks

$

173,060

$

110,044

$

113,503

Investment securities held to maturity

-

5,315

5,378

Investment securities available for sale

4,034

4,049

3,895

Mortgage-backed securities available for sale

27,381

3,496

3,558

Trading securities

2,675

2,687

6,953

Loans:

One-to-four family residential, including condominium and cooperative apartment

at September 30, 2017, June 30, 2017 and December 31, 2016, respectively)

(204,427

)

(199,597

)

(201,833

)

TOTAL STOCKHOLDERS' EQUITY

586,037

580,448

565,868

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

$

6,444,429

$

6,258,184

$

6,005,430

(1) Includes loans underlying cooperatives.

(2) While the loans within this category are often considered "commercial real estate" in nature, multifamily and loans underlying cooperatives are here reported separately

from commercial real estate loans in order to emphasize the residential nature of the collateral underlying this significant component of the total loan portfolio.

DIME COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

(Dollars in thousands except share and per share amounts)

For the Three MonthsEnded

For the Nine Months Ended

September 30,

June 30,

September 30,

September 30,

September 30,

2017

2017

2016

2017

2016

Interest income:

Loans secured by real estate

$

51,621

$

51,137

$

48,090

$

153,233

$

141,099

Commercial and industrial ("C&I")

1,043

474

10

1,558

20

Other loans

19

18

18

55

56

Mortgage-backed securities

27

14

2

55

6

Investment securities

108

164

129

462

567

Other short-term investments

811

611

707

2,139

2,089

Total interestincome

53,629

52,418

$

48,956

157,502

143,837

Interest expense:

Deposits and escrow

9,408

9,509

8,635

28,424

23,026

Borrowed funds

5,763

4,856

4,974

15,080

15,223

Total interest expense

15,171

14,365

13,609

43,504

38,249

Net interest income

38,458

38,053

35,347

113,998

105,588

Provision for loan losses

23

1,047

1,168

1,520

1,589

Net interest income afterprovision

for loan losses

38,435

37,006

34,179

112,478

103,999

Non-interest income:

Service charges and other fees

948

919

1,123

2,661

2,566

Mortgage banking income, net

69

65

16

150

71

Gain on trading securities

28

59

69

162

108

Gain on sale of real estate

-

-

-

-

68,183

Gain on sale of securities and other assets

2,607

-

-

2,607

40

Income from BOLI

558

551

570

1,654

2,173

Other

73

153

293

574

976

Total non-interest income

4,283

1,747

2,071

7,808

74,117

Non-interest expense:

Salaries and employee benefits

8,593

8,960

8,616

27,577

26,132

ESOP and RRP benefit expense

353

381

815

1,030

2,539

Occupancy and equipment

3,492

3,500

3,250

10,620

8,992

Data processing costs

3,392

1,503

1,284

6,502

3,735

Marketing

1,467

1,466

922

4,399

3,278

Federal deposit insurance premiums

875

712

613

2,242

1,933

Loss from extinguishment of debt

1,272

-

-

1,272

-

Other

2,731

2,947

2,732

8,771

7,584

Total non-interest expense

22,175

19,469

18,232

62,413

54,193

Income before taxes

20,543

19,284

18,018

57,873

123,923

Income tax expense

7,230

7,295

7,481

21,414

52,141

Net Income

$

13,313

$

11,989

$

10,537

$

36,459

$

71,782

Earnings per Share ("EPS"):

Basic

$

0.36

$

0.32

$

0.29

$

0.97

$

1.95

Diluted

$

0.35

$

0.32

$

0.29

$

0.97

$

1.95

Average common shares outstanding

for Diluted EPS

37,441,855

37,635,798

36,788,307

37,536,816

36,756,618

DIME COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES

UNAUDITED SELECTED FINANCIAL HIGHLIGHTS

(Dollars in thousands except per share amounts)

Ator For the Three MonthsEnded

At or For the Nine Months Ended

September 30,

June 30,

September 30,

September 30,

September 30,

2017

2017

2016

2017

2016

Per Share Data:

Reported EPS (Diluted)

$

0.35

$

0.32

$

0.29

$

0.97

$

1.95

Cash dividends paid per share

0.14

0.14

0.14

0.42

0.42

Book value per share

15.66

15.41

14.79

15.66

14.79

Tangible book value per share (1)

14.17

13.93

13.31

14.17

13.31

Dividend payout ratio

40.00

%

43.75

%

48.28

%

43.30

%

21.54

%

Performance Ratios (Based upon Reported Net Income):

Return on average assets

0.85

%

0.78

%

0.75

%

0.79

%

1.76

%

Return on average common equity

9.14

%

8.32

%

7.63

%

8.43

%

17.89

%

Return on average tangible common equity (1)

10.11

%

9.20

%

8.49

%

9.34

%

19.97

%

Net interest spread

2.38

%

2.40

%

2.44

%

2.39

%

2.52

%

Net interest margin

2.53

%

2.57

%

2.59

%

2.56

%

2.69

%

Average Interest Earning Assets to Average Interest Bearing Liabilities

115.62

%

117.18

%

116.14

%

116.38

%

116.87

%

Non-interest expense to average assets

1.41

%

1.27

%

1.29

%

1.35

%

1.33

%

Efficiency ratio

55.29

%

48.99

%

48.82

%

52.43

%

48.66

%

Loan-to-deposit ratio at end of period

136.78

%

133.01

%

132.00

%

136.78

%

132.00

%

Effective tax rate

35.19

%

37.83

%

41.52

%

37.00

%

42.08

%

Average Balance Data:

Average assets

$

6,290,568

$

6,128,378

$

5,653,103

$

6,148,620

$

5,444,673

Average interest earning assets

6,084,253

5,918,173

5,453,070

2,942,245

5,239,049

Average loans

5,930,165

5,802,417

5,330,442

5,807,893

5,096,174

Average deposits

4,355,770

4,476,004

3,973,753

4,439,095

3,638,706

Average common equity

582,545

576,689

552,370

576,319

534,851

Average tangible common equity (1)

526,907

521,051

496,733

520,681

479,214

Asset Quality Summary:

Non-performing loans (excluding loans held for sale)

$

806

$

3,374

$

3,875

$

806

$

3,875

Non-performing assets (2)

806

4,661

5,155

806

5,155

Net charge-offs

1

16

29

49

54

Non-performing loans/ Total loans

0.01

%

0.06

%

0.07

%

0.01

%

0.07

%

Non-performing assets/ Total assets

0.01

%

0.07

%

0.09

%

0.01

%

0.09

%

Allowance for loan loss/ Total loans

0.37

%

0.37

%

0.37

%

0.37

%

0.37

%

Allowance for loan loss/ Non-performing loans

2730.40

%

651.60

%

517.39

%

2730.40

%

517.39

%

Loans delinquent 30 to 89 days at period end

$

84

$

1,872

$

20

$

84

$

20

Capital Ratios - Consolidated:

Tangible common equity to tangible assets (1)

8.30

%

8.46

%

8.67

%

8.30

%

8.67

%

Tier 1 common equity ratio

10.65

10.78

11.24

10.65

11.24

Tier 1 risk-based capital ratio

10.65

12.17

12.76

10.65

12.76

Total risk-based capital ratio

13.38

14.96

13.20

13.38

13.20

Tier 1 leverage ratio

8.58

9.86

10.29

8.58

10.29

Capital Ratios - Bank Only:

Tier 1 common equity ratio

11.47

%

11.44

%

11.22

%

11.47

%

11.22

%

Tier 1 risk-based capital ratio

11.47

11.44

11.22

11.47

11.22

Total risk-based capital ratio

11.91

11.88

11.67

11.91

11.67

Tier 1 leverage ratio

9.23

9.25

9.04

9.23

9.04

(1) See "Non-GAAP Reconciliation" table for reconciliation of tangible common equity and tangible assets.

(2) Amount comprised of total non-accrual loans, other real estate owned, and the recorded balance of pooled bank trust preferred security investments that were deemed to meet the criteria of a non-performing asset.